Accounting for Customer Overpayments

A customer's credit card is accidentally charged twice, and the overcharged amount is deposited to the seller's bank accounts. The mistake is caught four days later and reversed. What is the best way to do the accounting for these transactions?

One of the two charges is correct and is used to pay off an open invoice, clearing the accounts receivable. Where should the second charge that is in mistake go? Would it be better to make this deposit an Other Current Asset or Other Current Liability up until it is cleared by the credit to the customer's card?

Reply to
Will
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I would create a clearing account if you don't already have one, and transfer the second charge to that account. That way, you have a balance sitting in the clearing account until you process the adjustments, which should go to this same account to clear the balance. All the entries are then quite visible and reconcilable.

Ken Russell

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Reply to
Ken Russell

My question was should the Clearing account be a current asset or current liability.

Reply to
Will

Reply to
Beverly

Setting up another account would just create clutter in your chart of accounts. I would recommend that you just apply the overpayment to the customer's account (Dr to cash, Cr to A/R). The credit balance will show on the customer's account (and statement). This is where it should show. Your accounting records will reflect the economic activity that occurred.

When the charge is reversed, then an entry will bring the customer's account back into balance... (Dr to A/R, Cr to cash).

A final thought... if everything cleared in four days, then besides maintaining your customer's goodwill, it really won't matter (unless the timing of the events crosses over fiscal periods)

Just my thoughts...

Regards, Russell Tuncap, CMA, CPA

Reply to
R

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